Controlling Markets During a Stop Loss Trigger

ABSTRACT

A system mitigates market spike effects caused by conditional ordering triggering and election in an automated matching system. The system monitors trading as a result of cascading triggering of conditional orders. When an order is executed beyond a predetermined price threshold, an instrument may be flagged, allowing matching to occur only at or within the predetermined price threshold. Orders within the price threshold are matched at the price threshold against orders beyond it, dampening any instantaneous damaging effects of the price spike. The system may adjust the price threshold when market appropriate, allowing the order flow to bring the market back to whatever is the true price level. The system mitigates purely conditional order cascade driven price fluctuations, but allows the market to continuously trade in controlled price and time intervals ensuring that true market moves can still occur without price control mechanisms hindering trade matching and true price discovery.

REFERENCE TO RELATED APPLICATIONS

This application is a divisional under 37 C.F.R. §1.53(b) of U.S. patentapplication Ser. No. 11/900,810, filed Sep. 13, 2007, now U.S. Pat. No.______, the entire disclosure of which is hereby incorporated byreference.

BACKGROUND

This invention relates to monitoring financial transactions, andparticularly, to mediating an unbalanced market.

The speed in which trades are executed through electronic tradingsystems provide many benefits. Electronic trading systems can facilitatea large number of market transactions. The greater the number of markettransactions, the greater a market's liquidity. In liquid markets,prices are driven by competition; prices reflect a consensus of aninvestment's value; and trading systems provide a free and opendissemination of information.

While speed and efficiency in electronic markets can enhance traderwealth, these qualities can also increase the adverse affect of a tradethat triggers an election of buy or sell stop orders. In a futuresmarket that has few resting orders but many stop orders, an orderexecuted at a limit price can cause a cascading execution of buy or sellstop orders. The triggering and election of these stop orders can seemalmost instantaneous, lowering the value of a market in just a fewseconds.

A problem may occur when one or more trades bring many stop orders intothe market. A fast execution of these stop orders may prevent oppositeside orders from entering the market, preventing buyers from competingagainst other buyers and sellers from competing against other sellers.An onset of stop orders may enter the market in the following sequence:

-   -   1. A stop order, triggered by a trade, enters the market at a        limit price.    -   2. The limit price trades almost immediately.    -   3. A second stop order to buy, triggered by the last trade,        enters the market at a higher limit price (or a lower limit        price if the order is a stop order to sell).    -   4. This new limit price trades almost immediately.    -   5. A third stop order to buy, triggered by the last trade,        enters the market at a higher limit price (or a lower limit        price if the order is a stop order to sell) and so forth.

The order processing sequence occurs quickly; so quickly that tradersmay not be able to prevent the buy or sell stop orders from trading awayfrom the current market prices by entering opposite side orders.

The entire process may be illustrated through a hypothetical E-Mini S&P500 futures market (“ESM3”). In Table 1, an order entered on the bidside of the market for a quantity of 1 at a price of 873.75, trades. Asthe order trades, multiple stop orders enter the market, which in turntrade and bringing other stop orders into the market. In the ESM3market,

TABLE 1 ESM3 TON QTY BID ASK QTY TON TON 6 Stop (88075) 5 88475 87375 10TON 1 TON 7 Stop (87875) 5 88475 87475 5 TON 2 TON 8 Stop (87825) 588325 87675 5 TON 3 TON 9 Stop (87675) 5 88475 87900 1 TON 4 TON 10 Stop(87525) 5 88475 88075 1 TON 5 TON 11 Stop (87375) 10 87900 TON 12 Stop(87375) 10 87675 Incoming 1 87375

Trade 1 Incoming (1-lot) trades with Trade Order Number (TON) 1 (1-lot)at 873.75; TON 12-Stop (87375), TON 11-Stop (87375) are triggered byTrade 1;

Trade 2 TON 12 (9-lot) trades with TON 1 (9-lot) at 873.75;

Trade 3 TON 12 (1-lot) trades with TON 2 (1-lot) at 874.75;

Trade 4 TON 11 (4-lot) trades with TON 2 (4-lot) at 874.75;

Trade 5 TON 11 (5-lot) trades with TON 3 (5-lot) at 876.75;

TON 10-Stop (87525), TON 9-Stop (87675) are triggered by Trade 5;

Trade 6 TON 11 (1-lot) trades with TON 4 (1-lot) at 879.00;

TON 8-Stop (87825) and TON 7-Stop (87875) are triggered by Trade 6.

Trade 7 TON 10 (1-lot) trades with TON 5 (1-lot) at 880.75; and

TON 6-Stop (88075) is triggered by Trade 7.

After the cascading triggers of stop orders trade, the final restingprice of the market drops to 884.75.

TABLE 2 ESM3 QTY BID ASK QTY 19 88475 5 88325

To mitigate the harmful effects of a cascading trigger of stop orders,some exchanges have adopted policies and procedures that, in theappropriate case, permit the cancellation or busting of selected trades.However, the cancellation or busting of trades does not occursimultaneously and is not in the best interest of market participants.An exchange must first identify the problem and then decide on asolution.

In the hypothetical E-Mini S&P 500 futures market, first the exchangemust determine what caused the market movement. Once that problem isdiscovered, the exchange would then have to decide if the marketmovement lies outside of a “no-bust range.” In a “no-bust range,” tradesexecuted within a price range may not be subject to cancellation, evenif executed in error. Trades executed at prices outside of theexchange's “no-bust range” are considered as quite possibly being beyondnormal market forces. Considering the high interdependence of manymarkets, disruptions may occur in other related markets such as theNasdaq-100 Index or a larger S&P 500 futures contract that are highlycorrelated to the hypothetical E-Mini S&P 500.

While such decisions are considered, traders are exposed to seriousmarket risk until a decision is made and until they are notified of thedecision. Furthermore, traders will not know if their gains or loseswill be reversed. Traders that were short before the cascade of stoporder triggers occurred and bought at the bottom of the market may notrealize expected gains. Similarly, traders that went long after themarket dip could lose their expected gains. Because gains and loses maydisappear the instant an exchange announces that trades will be busted,some traders will not spend unrealized money on new trades. Othertraders may be forced out of the market until the decision to busttrades is reached to avoid an unexpected margin call.

The present invention is directed to a system and method that overcomesome of these potential drawbacks in the prior art.

BRIEF DESCRIPTION OF THE DRAWINGS

The system may be better understood with reference to the followingdrawings and description. The components in the figures are notnecessarily to scale, emphasis instead being placed upon illustratingthe principles of the invention. Moreover, in the figures, likereferenced numerals designate corresponding parts throughout thedifferent views.

FIG. 1 is a system diagram encompassing a present embodiment.

FIG. 2 is a block diagram of a trade evaluation system of FIG. 1.

FIG. 3 is a block diagram of an alternative trade evaluation system ofFIG. 1.

FIG. 4 is a block diagram of FIG. 1.

FIG. 5 is a flow diagram of an embodiment.

FIG. 6 is a flow diagram of an alternative embodiment.

DETAILED DESCRIPTION OF THE DRAWINGS AND PRESENTLY PREFERRED EMBODIMENTS

The system mitigates or prevents market spikes due to the triggering,election and trading of conditional orders. The system includes anautomated trading engine that performs a verification of a tradableconditional order that is triggered, to ensure that a traded price willnot violate a predetermined trade threshold or existing exchangematching rules. If a potential trade price lies outside of the tradethreshold, the instrument may be flagged in the market. When the marketis flagged, orders for instruments in the flagged market may be matchedat the predetermined price threshold against orders beyond thepredetermined price threshold. The orders for instruments may includeorders received that have a price within the predetermined pricethreshold. Although the orders may be matched at the predetermined pricethreshold, the orders may be matched in a sequence prioritized by theprice, order arrival, or another parameter.

The price threshold may vary by the product and/or the time of day. Inaddition, the price threshold may be adjusted when orders have a pricebeyond the predetermined price threshold, a predetermined time intervalis exceeded, or based on some other parameter. When this occurs, theorders for instruments may be matched at the adjusted price thresholdagainst orders beyond the predetermined price threshold.

FIG. 1 is a system diagram encompassing a present embodiment. The figureillustrates a hub-and-spoke system, wherein each resource, application,or order flows through a single entity (e.g., the hub 114) before beingreceived by servers 110-112. In this embodiment, the hub 114 and theservers 102-112 may be integrated into a single server or comprise aserver cluster made up of a group of independent computers that worktogether as a single system but present the appearance of a singleserver to one or more clients.

In FIG. 1, the clients are illustrated as interfaces 120-126, and one ormore networks such as a wide area network (“WAN”), a local area network(“LAN”), a ring network, a token ring network, a bus network, 128 and130, etc. Other peripheral devices may be coupled to hub 114, such as aprinter, a speaker, and/or any other device.

Preferably, the hub 114 comprises a management server. The managementserver receives, converts, and transfers data in a form compatible withprotocols used by servers 110-112, a communication link 116, theinterfaces 120-126, and/or the networks 128 and 130. The interfaces mayinclude an application programming interface (an “API”) 124, a datainterface 122, a market data interface 120, and/or other interfaces 126,for example. Preferably, the market data interface 120 provides quotevendors with access to selected output disseminated from the hub 114.

In FIG. 1, the hub 114 provides routing control to a trade matchingsystem, such as an automated trading engine shown as servers 110 and112. When orders are matched automatically by a matching algorithm orsystem within one or both of the servers 110 and/or 112, preferably thedetails of the trade and information of interest to the market aredisseminated to quote vendors and trade participants that include thebuyers and the sellers.

Preferably, the trade evaluation system 118, shown as servers 102-108 inFIG. 1 interfaces the hub 114. In the embodiment of FIG. 2, the tradeevaluation system 118 may include an order book manager 202, an orderprocessor 204, a spike control processor 206, a reserve market processor208, and an open market processor 210. In FIG. 3, the trade evaluationsystem 118 may include evaluation logic 306, delay logic 308, pricinglogic 310, timing logic 312, stop-loss trigger logic 314, matching logic316, and step price logic 318. Preferably, the evaluation logic 306 andorder processor 204 calculate a price threshold, or a price that extendsabove or below a selected or a theoretical price. Such a threshold orinterval may be fixed within a number of ticks above and below a lasttraded price. The threshold or interval may vary by product, instrument,contract, or other relevant market considerations.

When the system is used in a futures exchange, the price threshold orrange may comprise a no-bust range that defines a price interval withinwhich transactions that fall within that interval are not subject tocancellation by the exchange. Preferably, trades that fall within theno-bust range do not have a significant adverse effect on the market,and therefore, the trade stands even in error. In these embodiments, thetrades that fall within the no-bust range cannot be cancelled byagreement. In other embodiments, trades that fall within the no-bustrange may be cancelled by an agreement between market participants.

Preferably, the market data interfaces 120, the data interfaces 122, thenetworks 128 and 130, the APIs 124 and the other interfaces 126 providemarket participants, quote vendors, and others with real and/or delayedtime access to trade data. The trade data can include investment pricessuch as futures contract prices, settlement prices, bids, offers, andother exchange related or derived information. In some embodiments,inter-process communication methods, such as a Dynamic Data Exchange(“DDE”) and/or an Object Linking and Embedding (“OLE”) are used toexchange data and commands between two or more servers or applicationsthat run simultaneously.

As shown in FIG. 2, the trade evaluation system 118 includes an orderbook manager 202, an order processor 204, a spike control processor 206,a reserve market processor 208, and an open market processor 210.Preferably, orders flow into the order processor 204 and are maintainedby the order book manager 202. The order book manager 202 may maintainthe exchange's order books, manage communication with an automatedtrading engine, and allow an exchange administrator to establish orderfilters (e.g., trading authorizations, instrument access, price bands,trading limits, etc.).

The order book manager 202 may also retain a predetermined or aprogrammable parameter used by order process logic or the orderprocessor 204. In this embodiment, instrument parameters are stored in atable of rows and columns. In another embodiment, the parameters arestored in a data structure comprising a list of entries that use aunique key to identify each entry. The data structure may include a setof related values such as a linked list that use a common indexingscheme. In these embodiments, an instrument is reserved when theinstrument is stored in a data table or data structure.

Preferably, parameters are initialized on start up of an automatedtrading engine and are maintained for a predetermined period of timesuch as a trading week. When a conditional order is triggered in afutures market, such as a stop order that enters the market at a limitor market price, the order processor 204 compares an execution price ofthe stop order to a predetermined price threshold such as a no-bustrange. Preferably, this comparison determines if the transaction may becompleted. If an execution price lies outside of the predetermined pricethreshold, the order processor 204 notifies the spike control processor206.

Once notified, the spike control processor 206 may control the matchingof orders received by the order book manager. A register, current, orsoftware routine used to measure time intervals may be activated by thespike control processor 206 to measure a time interval. The timeinterval may vary in relation to a time of day, a product, a trader'slocation, market volatility, and/or any other relevant market conditionsor combination of market conditions. The spike control processor 206 mayactivate a quantity counter to measure the amount and/or size of theorders. The quantity threshold may vary in relation to a time of day, aproduct, a trader's location, market volatility, and/or any otherrelevant market conditions or combination of market conditions.

The spike control processor 206 may match orders with prices within thepredetermined price threshold against orders with prices beyond thepredetermined price threshold. Orders with prices beyond the thresholdmay be aggregated so that their trade price is at or near thepredetermined price threshold. Orders may be matched at thepredetermined price threshold. Although orders may be executed at thepredetermined price threshold, orders may be matched in an orderprioritized by price, order arrival, or other parameters. Incomingorders with prices beyond the threshold may be aggregated at thepredetermined price threshold. At the end of the time interval and/orupon reaching the quantity threshold, if all of the aggregated ordersare matched against orders within the predetermined price threshold,then trading may continue with limited or without constraints.

At the end of the time interval and/or upon reaching the quantitythreshold, aggregated orders may remain that have not been matchedagainst orders within the threshold. In these circumstances, thepredetermined price threshold may be adjustable and may vary with marketvolatility, time of day, or other parameter. The adjustment of the pricethreshold may be stepped in a predetermined price interval. For example,for orders on the bid side of a market, the price threshold may bestepped up, and for orders on the offer side of a market, the pricethreshold may be stepped down. If the price threshold is adjusted, theexecution price of the matched orders may be at the adjusted pricethreshold, instead of at the predetermined price threshold. The matchingof orders may continue until no aggregated orders remain.

In an alternative embodiment, once notified, the spike control processor206 may reserve the instrument through a reserve market processor 208and activates a verification timer. The verification timer may measure atime interval that varies in length in relation to a time of day, aproduct, a trader's location, market volatility, and/or any otherrelevant market conditions or combination of market conditions. At theend of an initial time period, the spike control processor 206 comparesan indicative opening price to the predetermined price threshold. If theindicative opening price is above/below the predetermined threshold, theverification timer is reactivated for an additional iteration that mayvary with one or more market conditions. In this embodiment, theindicative opening price is a changing price that may be based on anindicative trade, a better bid, or a better offer. Similarly, apredetermined price threshold may comprise a dynamic price range thatchanges with each iteration.

In this alternative embodiment, the spike control processor 206 willreserve a market unless the indicative opening price lies within thepredetermined price threshold, a predetermined number of iterations ortime periods lapse, or a manual intervention occurs. When one of thoseconditions occurs, the spike control processor 206 notifies the openmarket processor 210 to open the market. One variable utilized by thespike control processor 206 identifies the duration that an instrumentmay be held in reserve. A price verification time variable is invokedand a timer activated when the order processor 204 invokes the spikecontrol processor 206. The price verification time variable comprises aprogrammable or a constant time value.

This alternative embodiment of the spike control processor 206 also usesa price iteration variable. The price iteration variable comprises aprogrammable multiplier. Preferably, the product of the price iterationvariable and price verification time variable calculates a maximumlength of time an instrument may remain in a reserved state. If theprice verification time variable is five seconds and the price iterationvariable is eleven, the maximum time the market may be in a reservedstate is fifty-five seconds. The time variables are initialized on startup and are maintained for a length of time, such as a trading week. Ifthe variables are changed before the period lapses, such as in themiddle of a trading week, the variables may be update in a real or adelayed time.

Another embodiment of the trade evaluation system 118 shown in FIG. 3couples an automated trading engine 110 and 112. In this embodiment, thetrade evaluation system includes evaluation logic 306, delay logic 308,pricing logic 310, timing logic 312, stop loss trigger logic 314,matching logic 316, and step price logic 318. Preferably, the evaluationlogic 306 monitors orders submitted to an automated matching system orautomated trading engine 110 and 112. The evaluation logic 306 maycompare an execution price of a conditional order such as a stop orderto a predetermined price threshold. The price threshold may includeprice ranges that reflect a range of prices that extend above and belowan actual or synthetic market price. The price threshold may differ byproduct, may be fixed within a number of ticks above and below an actualor synthetic market price, or may vary above and below an actual orsynthetic market price. Additionally, a synthetic no bust range may alsobe used including the no bust ranges disclosed in U.S. application Ser.No. 10/405,025 entitled System and Method for Monitoring Trades of aNo-Bust Range in an Electronic Trading System, which is incorporated byreference in its entirety.

While in some embodiments price comparisons occur in delayed or batchtime, preferably the comparison occurs in real-time, such as within anarrow time period after a potential trade would occur. If the price ofthe trade for an instrument is within the price threshold, the tradestands and an open continuous trading is maintained. If the price of thetrade lies outside of the predetermined price threshold, the evaluationlogic 306 may notify the stop loss trigger logic 314 to flag a marketfor the instrument. The matching logic 316 may match orders with priceswithin the predetermined price threshold for the instrument in theflagged market at the predetermined price threshold against ordersbeyond the predetermined price threshold. The matching logic 316 mayaggregate the orders beyond the threshold so that their price is at thepredetermined price threshold. Although orders may be executed at thepredetermined price threshold, orders may be matched by the matchinglogic 316 in an order prioritized by price, order arrival, or otherparameters. At the end of a time interval and/or upon reaching aquantity threshold, if all of the aggregated orders are matched againstorders within the predetermined price threshold, then trading maycontinue normally.

At the end of the time interval and/or upon reaching the quantitythreshold, aggregated orders may remain that have not been matchedagainst orders within the threshold. In this case, the predeterminedprice threshold may be adjusted and vary with a market volatility, timeof day, or other parameter. The step price logic 318 may step the pricethreshold in a predetermined price interval. For example, for orders onthe bid side of a market, the price threshold may be stepped up, and fororders on the offer side of a market, the price threshold may be steppeddown. If the price threshold is adjusted by the step price logic 318,the execution price of the matched orders may be at the adjusted pricethreshold, instead of at the predetermined price threshold. The matchingof orders may continue until no aggregated orders remain.

In an alternative embodiment, if the price of the trade caused by theexecution of conditional orders falls outside of the price range, theevaluation logic 306 places the product into a reserved state. Uponreservation of the product, delay logic 308 determines a maximum timethe market may remain in a reserved state. Pricing logic 310 derives anopening price at which a product would trade upon the opening of themarket or an equilibrium price that falls substantially within theoverlap of the pending bid and offer prices. The pricing logic 310calculates opening prices upon demand, in delayed-time, or in real-timeas orders are received. The delay logic 308 delays the matching oforders submitted to the automated trading engine 110 and 112. The delaywill reserve a product until an opening price lies within a price range,a period of time lapses, or an automated or a manual interventionoccurs. Price ranges, delay, and/or the measure of time are retained inan audit trail and/or memory coupled to or resident to the evaluationsystem 118. The tracking and/or storage of one or more of these valuescan preserve market integrity and allow an exchange to review an event.

As shown in FIG. 4, one or more of the components that comprise thetrade evaluation system 118 of FIGS. 2 and/or 3 may couple a controlcenter 402 and the trade matching system 110 and 112. Preferably, thetrade matching system 110 and 112 uses one or more matching systems ormethods, such as a “first in, first out” (“FIFO”), an allocation, ahybrid price/time priority, such as a Lead Market Maker (“LMM”), forexample, or any other matching systems or methods to automatically matchorders. Once the details of the orders are entered through a userinterface 404, preferably, the trade matching system 110 and 112executes the trade and transmits matched trade data (e.g., instrumenttype, the price, the quantity, the buyer, the seller, etc.) to the tradeevaluation system 118 and the user interface 404. The trade matchingsystem 110 and 112 also transmits matched trade data and quote data tothe quote and data vendors 120 and 122. Preferably, the matched tradedata and quote data describe recent market movements.

Through a control center 404, preferably an exchange or a member of theexchange oversees the reservation of products in the market. The controlcenter 404 may manually or automatically override the trade evaluationsystem 118 or perform a state change on any product, instrument,parameter, or group. The control center may view, configure, and programthe predetermined price thresholds and timing variables of FIG. 2 to anymarket condition or combination of market conditions just as it mayview, configure, and program the logic of FIG. 3 to such marketconditions.

To assure that market participants and the exchange are aware of thestatus of the market or any changes to thresholds, variables, or logic,preferably, the evaluation system 118 may provide a notice to the userinterfaces 120-126 (FIG. 1) and 404 (FIG. 4), the control center 404(FIG. 4), and any communication system. In some instances, each of theembodiments may provide selected notices only to the control center 404,allowing the exchange to notify the market of certain conditions ifneeded through a messaging system.

Because market participants may not be aware that a product or aninstrument is reserved due to the large volume of messages sent over anelectronic trading system or because the market participants are nolonger trading, the present system and method also may encompassindependent communication systems that are coupled to the tradeevaluation system 118 to convey information, warnings, or alerts aboutan instrument in a reserved state. Such systems can include devices thatsend and/or receive messages via telecommunication or wireless linkssuch as portable phones, personal digital assistants (“PDAs”), and/orelectronic mail devices, devices that send and/or receive images and canprint them on a tangible media such as faxes, etc. Preferably, thesesystems make market participants aware of the state of the market in anarrow timeframe.

The present system and method mitigates or prevents market spikes causedby the triggering, election, and trading of conditional orders. Anembodiment of the method may be translated into a computer readablemedium, programming instructions (e.g., code), or information that canbe stored and retrieved from a volatile or non-volatile memory.

Any exchange, such as a futures exchange that enforces a no-bust rangeor another price range may use the method shown in FIG. 5. The methodmay be encoded in a signal bearing medium, a computer readable mediumsuch as a memory, programmed within a device such as one or moreintegrated circuits, or processed by a controller, a computer, a server,or a server cluster. If the methods are performed by code or software,the code or software may reside in a memory resident to or interfaced tothe trade matching system 110 and 112 of FIG. 1 or 3, a communicationinterface, or any other type of non-volatile or volatile memoryinterfaced or resident to the trade evaluation system 118 of FIG. 2. Thememory may include an ordered listing of executable instructions forimplementing logical functions. A logical function may be implementedthrough digital circuitry, through source code, or through analogcircuitry. The code or software may be embodied in any computer-readableor signal-bearing medium, for use by, or in connection with aninstruction executable system, apparatus, or device. Such a system mayinclude a computer-based system, a processor-containing system, oranother system that may selectively fetch instructions from aninstruction executable system, apparatus, or device that may alsoexecute instructions.

A “computer-readable medium,” “machine-readable medium,”“propagated-signal” medium, and/or “signal-bearing medium” includes anyand all systems, components, apparatuses, and/or devices that contain,store, communicate, propagate, or transport code or software for use byor in connection with an instruction executable system, component,apparatus, or device. The machine-readable medium may selectively be,but not limited to, an electronic, magnetic, optical, electromagnetic,infrared, or semiconductor system, apparatus, device, or propagationmedium. A non-exhaustive list of examples of a machine-readable mediumwould include: an electrical connection having one or more wires, aportable magnetic or optical disk, a volatile memory such as a RandomAccess Memory “RAM,” a Dynamic Random Access Memory (DRAM), a Read-OnlyMemory “ROM,” an Erasable Programmable Read-Only Memory (EPROM or Flashmemory), an electrical Erasable Programmable Read-Only Memory (EEPROM),and an optical fiber (optical). A machine-readable medium may alsoinclude a tangible medium upon which code or software is printed, as thecode or software may be translated into a high-level language that maybe compiled through a scanner, and/or interpreted or otherwiseprocessed. The processed medium may then be stored in a computer and/ormachine memory.

As shown in FIG. 5, a stop order is triggered and enters the market at alimit price or at a market price at act 502. In this embodiment, a stoporder, sometimes called a stop-loss order, or simply a stop, is an orderto buy or sell at a limit price when the market reaches a specifiedprice. A limit price is a specified price or a price that is morefavorable to the trader. A limit order to buy will be executed at orbelow the specified price limit. A limit order to sell will be executedat or above the specified price limit.

At act 504, the method compares an execution price to a no-bust rangethat is calculated separately for each product or instrument. Theno-bust range may comprise a synthetic price range or a last tradedprice plus or minus a no bust-range variable.

If the price of the trade lies within the no-bust range, the tradestands and open continuous trading is maintained at acts 506 and 508.The process will then be applied each time a stop order would create atrade. A price comparison is performed at each tradable price level ofthe market.

If the price of the trade falls outside of the no-bust range,preferably, the product is placed into a reserved state at acts 506 and510. Upon its reservation, a timer that is coupled to or resident to anautomated trading engine is activated. A counter will also be activatedto track the number of times an indicative opening price verificationprocess is performed.

In the illustrated embodiment, the counter is initialized to “1” at act512. Preferably, the counter cannot exceed a value that is retained in atable or a data structure. If more than one comparison to an indicativeopening price occurs, a varying price range (e.g., an expanded no-bustrange) will be determined for verification of an indicative openingprice. The varying price range may comprise a product of the no-bustrange and a multiplier. Preferably, the multiplier increasesincrementally or in multiples each time an indicative opening priceverification occurs.

Once a predetermined length of time lapses, an indicative opening priceand a price range are calculated and broadcast to the market through adata feed at acts 514 and 516. The indicative opening price represents aprice at which a product would trade upon an opening of a market. Anindicative opening price may comprise an equilibrium price that fallswithin an overlap of bid and offer prices.

A comparison of an indicative opening price to a calculated price rangeoccurs at act 518. If the indicative opening price lies within the pricerange, the market opens, and trading begins at the indicative openingprice or a market price. The process resumes when another stop order istriggered at act 502.

If the indicative opening price lies outside of the price range, processvariables are incremented at acts 522 and 524, and the process continuesuntil a predetermined number of iterations is reached at act 526. When amaximum number of iterations are reached, a product reopens at act 520and the process resumes when another stop order is triggered at act 502.

If a maximum number of iterations is not reached, the process resumeswhen the time variable is read or programmed at act 528 and anotherindicative opening price is calculated. At act 514, the indicativeopening price is a dynamic price that changes as orders are entered intothe market and pending orders are modified, and/or cancelled. Thepresent method continues until a predetermined number of iterations isreached or an external event occurs. An external event may include theclosing of the market or a manual market intervention.

In FIG. 6, a stop order is triggered and enters the market at a limitprice or at a market price at act 602. At act 604, the method comparesan execution price to a predetermined price threshold that is calculatedseparately for each product or instrument. If the price of the tradelies within the predetermined price threshold, the trade stands and opencontinuous trading is maintained at acts 606 and 608. The process willthen be applied each time a stop order would create a trade. A pricecomparison is performed at each tradable price level of the market.

If the price of the trade is beyond the predetermined price threshold,preferably, the market for the product is flagged at acts 606 and 610.Upon flagging of the market, a timer that is coupled to or resident toan automated trading engine is activated. A counter may also beactivated to track the quantity of orders that are matched or executed.At act 612, orders within the predetermined price threshold are matchedat the predetermined price threshold against orders beyond thepredetermined price threshold. Orders beyond the predetermined pricethreshold may be aggregated so that their execution price is at thepredetermined price threshold instead of their respective prices. Thepriority of the order matching may be based on the price of the orders,the order arrival, or other parameters.

At act 614, the method determines if aggregated orders beyond thethreshold still remain after matching for a certain time interval or fora certain quantity. If no aggregated orders remain, the market maycontinue with normal trading in act 616. However, if aggregated ordersremain, then the method may continue to act 618. At act 618, the methodmay determine whether the predetermined price threshold should beadjusted. The predetermined price threshold may be adjusted based on,for example, if additional orders are received with a price beyond thepredetermined price threshold, if a predetermined time interval isexceeded, and/or if a predetermined quantity is exceeded. If the pricethreshold does not need to be adjusted, then the method returns to act612 and order matching is performed at the predetermined pricethreshold. However, if the price threshold needs to be adjusted, themethod continues to act 620, where the price threshold may be stepped bya predetermined price interval. The method returns to act 612 and ordermatching may be performed at the adjusted price threshold.

The above-described embodiments scale well to large networks, to newproducts, or to the large volatility that occurs in the markets thattrade popular contracts. The embodiments may facilitate any exchangebetween buyers and sellers, including markets that exchange equities,debt, investment indices, and other investments as well as any commodityor combination or series of commodity contracts, such as bundles thatcan comprise the purchase of one of a series of consecutive contracts.

When the trade evaluation system 118 is integrated or linked to anautomated trading engine that matches spreads, all related spreads areautomatically reserved when the spread lies outside of a predeterminedthreshold. When reserved, all related spread instruments are reservedand any implied spreading becomes inactive. When the market is allowedto open, all spreads corresponding to an underlying leg open. Inaddition, if a contract is utilizing implied trading, the impliedtrading will be turned off until the exchange's rules or other rulesallow for a re-initiating of an implied trading.

As shown in FIG. 4, the trade evaluation system 118 may couple a controlcenter 402. Through the control center an exchange administrator maytake an appropriate action on a spread and manually open correspondingspreads. Under these circumstances the implied spreading will remaininactive for a remainder of a trading session. An exchange administratormay also set a group of differing contracts to a pre-opening, takeappropriate action on the spread, and reset an opening for the group ofdiffering contracts. In one embodiment, implied spreading isautomatically reactivated at the opening of a market if the states ofthe investment leg allow it.

The present embodiments described above provide exchanges and users witha flexible approach and structure that mitigates or prevent sharp risesor declines in market prices due to the triggering, election, andtrading of conditional orders. To further illustrate the presentembodiments, exemplary markets are described and illustrated.

In a first example, a price verification time is programmed to fiveseconds and the initial no-bust range is six.

ESM3 TON QTY BID ASK QTY TON TON 6 Stop (88075) 5 88475 87375 10 TON 1TON 7 Stop (87875) 5 88475 87475 5 TON 2 TON 8 Stop (87825) 5 8832587675 5 TON 3 TON 9 Stop (87675) 5 88475 87900 1 TON 4 TON 10 Stop(87525) 5 88475 88075 1 TON 5 TON 11 Stop (87375) 10 87900 TON 12 Stop(87375) 10 87675 Incoming 1 87375

With the market in a continuous trading state, the following sequenceoccurs when an Incoming—Buy of 1@873.75 enters the market:

Trade 1 Incoming (1-lot) trades with TON 1(1-lot) at 873.75;

TON 12-Stop (87375), TON 11-Stop (87375) are triggered by Trade 1;

Trade 2 TON 12 (9-lot) trades with TON 1(9-lot) at 873.75;

Trade 3 TON 12 (1-lot) trades with TON 2 (1-lot) at 874.75;

Trade 4 TON 11 (4-lot) trades with TON 2 (4-lot) at 874.75;

Trade 5 TON 11(5-lot) trades with TON 3 (5-lot) at 876.75;

TON 10-Stop (87525), TON 9-Stop (87675) are triggered by Trade 5;

Trade 6 TON 11 (1-lot) trades with TON 4 (1-lot) at 879.00; and

TON 8-Stop (87825) and TON 7-Stop (87875) are triggered by Trade 6.

The market is placed in a reserved state because the trade that wouldoccur at a price of 880.75 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 873.75, the market will not trade past a price of 879.75.The order book will display the following in a reserved state:

ESM3 TON # QTY BID ASK QTY TON # TON 6 Stop (88075) 5 88475 88475 1 TON5 TON 10 5 88475 TON 9 5 88475 TON 7 5 88475 TON 8 5 88325

After waiting a predetermined length of time, if the indicative openingprice is greater than twice the no bust range (12.00 from the originallast price), the market will remain in a reserved state for a secondtime iteration. In this example, the market will be allowed to open ator near the end of the five second delay and the following trade willtake place using normal indicative opening price logic:

Trade 7 TON 10 (1-lot) trades with TON 5 (1-lot) at 880.75; and

TON 6-Stop (88075) is triggered by Trade 7.

ESM3 QTY BID ASK QTY 19 88475 5 88325

In a second example, an imbalance condition occurs during execution of asingle conditional order. When a sell order enters the market for aquantity of 1 at 860.00, a cascade of stop orders is triggered. In thisexample, the minimum price that can be traded for this trading sessionis 854.00.

ESM3 TON QTY BID ASK QTY TON TON 1 1 86000 85300 6 Stop (86000) TON 6TON 2 1 85900 TON 3 1 85800 TON 4 2 85400 TON 5 1 85300 86000 1 Incoming

With the market in a continuous trading state, the following sequenceoccurs when an Incoming—Sell of 1@860.00 enters the market:

Trade 1 Incoming (1-lot) trades with TON 1 (1-lot) at 860.00;

TON 6-Stop (86000) is triggered by Trade 1;

Trade 2 TON 2 (1-lot) trades with TON 6 (1-lot) at 859.00;

Trade 3 TON 3 (1-lot) trades with TON 6 (1-lot) at 858.00; and

Trade 4 TON 4 (2-lot) trades with TON 6 (2-lot) at 854.00.

The market is placed in a reserved state because the trade that wouldoccur at a price of 853.00 would violate the no bust range. Since thestop iteration began with a trade price of 860.00, the market will nottrade past a price of 854.00. The order book will display the followingin a reserved state:

ESM3 TON # QTY BID ASK QTY TON # TON 5 1 85300 85300 1 TON 6

After waiting the preset length of time, if the indicative opening priceis greater than twice the no bust range (12.00 from the original lastprice), the market will remain in a reserved state for a second timeiteration. In this example, the market will be allowed to open at ornear the end of the five second delay and the following trade will takeplace:

Trade 5 TON 5 (1-lot) trades with TON 6 (1-lot) at 853.00.

ESM3 QTY BID ASK QTY

In a third example, an upper no bust range violation occurs. Like theother examples, the price verification time is programmed to about afive second interval and the initial no-bust range is about six.

In this example, a buy order enters the market for a quantity of at873.75. The maximum price that can be traded for this trading iterationis 879.75.

ESM3 TON QTY BID ASK QTY TON TON 12 Stop (87375) 10 87675 87375 10 TON 1TON 11 Stop (87375) 10 87900 87475 5 TON 2 TON 10 Stop (87525) 5 8847587675 5 TON 3 TON 9 Stop (87675) 5 88475 87900 1 TON 4 TON 8 Stop(87825) 5 88325 88475 1 TON 5 TON 7 Stop (87875) 5 88475 TON 6 Stop(88075) 5 88475 Incoming1 1 87375

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1 (873.75 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 873.75;

TON 12-Stop (87375), TON 11-Stop (87375) are triggered by Trade 1;

Trade 2 TON 11 (9-lot) trades with TON 1 (9-lot) at 873.75;

Trade 3 TON 11 (1-lot) trades with TON 2 (1-lot) at 874.75;

Trade 4 TON 12 (4-lot) trades with TON 2 (4-lot) at 874.75;

Trade 5 TON 12 (5-lot) trades with TON 3 (5-lot) at 876.75;

TON 10-Stop (87525), TON 9-Stop (87675) are triggered by Trade 5;

Trade 6 TON 10 (1-lot) trades with TON 4 (1-lot) at 879.00; and

TON 8-Stop (87825) and TON 7-Stop (87875) are triggered by Trade 6.

The market is placed in a reserved state because the trade that wouldoccur at a price of 884.75 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 873.75, the market will not trade past a price of 879.75.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 10 4 88475 88475 1 TON 5 TON 9 5 88475TON 7 5 88475 TON 6 Stop (88075) 5 88475 Triggered in IOP TON 8 5 88325TON 12 1 87675

After waiting a predetermined length of time, if the indicative openingprice is greater than twice the no bust range (12.00 from the originallast price), the market will remain in a reserved state for a secondtime iteration. In this example, the market will be allowed to open ator near the end of the five second delay and the following trade willtake place:

Trade 7 TON 11 (1-lot) trades with TON 5 (1-lot) at 884.75; and

TON 6-Stop (88075) is triggered by Trade 7.

ESM3 QTY BID ASK QTY 18 88475 5 88325 1 87675

In a fourth example, a lower no bust range violation occurs. Like theother examples, the price verification time is programmed to about afive second interval and the initial no-bust range is about six.

In this example, a sell order enters the market for a quantity of 1 at860.75. The maximum price that can be traded for this trading iterationis 854.75.

ESM3 TON QTY BID ASK QTY TON TON 1 10 86075 85975 10 Stop (86075) TON 7TON 2 5 86000 85000 5 Stop (86000) TON 8 TON 3 5 85900 85875 5 Stop(85900) TON 9 TON 4 5 85875 85500 5 Stop (85875) TON 10 TON 5 1 8550085450 5 Stop (85500) TON 11 TON 6 10 85450 86075 1 Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@860.75 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 860.75;

TON 7-Stop (86075) is triggered by Trade 1;

Trade 2 TON 1 (9-lot) trades with TON 7 (9-lot) at 860.75;

Trade 3 TON 2 (1-lot) trades with TON 7 (1-lot) at 860.00;

TON 8-Stop (86000) is triggered by Trade 3;

Trade 4 TON 2 (4-lot) trades with TON 8 (4-lot) at 860.00;

Trade 5 TON 3 (1-lot) trades with TON 8 (1-lot) at 859.00;

TON 9-Stop (85900) is triggered by Trade 5;

Trade 6 TON 3 (4-lot) trades with TON 9 (4-lot) at 859.00;

Trade 7 TON 4 (1-lot) trades with TON 9 (1-lot) at 858.75;

TON 10-Stop (85875) is triggered by Trade 7;

Trade 8 TON 4 (4-lot) trades with TON 10 (4-lot) at 858.75;

Trade 9 TON 5 (1-lot) trades with TON 10 (1-lot) at 855.00; and

TON 11-Stop (85500) is triggered by Trade 8.

The market is placed in a reserved state because the trade that wouldoccur at a price of 854.50 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 860.75, the market will not trade past a price of 854.75.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 6 10 85450 85450 5 TON 11

After waiting a predetermined length of time, if the indicative openingprice is greater than twice the no bust range (12.00 from the originallast price), the market will remain in a reserved state for a secondtime iteration. In this example, the market will be allowed to open ator near the end of the five second delay and the following trade willtake place:

Trade 10 TON 6 (5-lot) trades with TON 11 (5-lot) at 854.50.

ESM3 QTY BID ASK QTY 5 85450

In a fifth example, a manual intervention occurs. Like the otherexamples, the price verification time is programmed to about a fivesecond interval.

In this example, a sell order enters the market for a quantity of 1 at874.00. The minimum price that can be traded for this trading iterationis 868.00. The ESM3 market should be reserved when violating the no bustrange at 868.00. However, due to a manual intervention, the five-seconditeration variable is overridden. The instrument will re-open by amanually initiating of an opening command.

ESM3 TON QTY BID ASK QTY TON TON 1 10 87400 87325 10 Stop (87400) TON 7TON 2 5 87350 87300 5 Stop (87350) TON 8 TON 3 5 87300 87250 5 Stop(87300) TON 9 TON 4 5 87250 86800 5 Stop (87250) TON 10 TON 5 1 8725086750 5 Stop (87250) TON 11 TON 6 10 86750 85750 10 Stop (87250) TON 1287400 1 Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@ 874.00 enters the market.

Trade 1 Incoming1 (1-lot) trades with TON 1(1-lot) at 874.00;

TON 7-Stop (87400) is triggered by Trade 1;

Trade 2 TON 1(9-lot) trades with TON 7 (9-lot) at 874.00;

Trade 3 TON 2 (1-lot) trades with TON 7 (1-lot) at 873.50;

TON 8-Stop (873.50) is triggered by Trade 3;

Trade 4 TON 2 (4-lot) trades with TON 8 (4-lot) at 873.50;

Trade 5 TON 3 (1-lot) trades with TON 8 (1-lot) at 873.00;

TON 9-Stop (87300) is triggered by Trade 5;

Trade 6 TON 3 (4-lot) trades with TON 9 (4-lot) at 873.00;

Trade 7 TON 4 (1-lot) trades with TON 9 (1-lot) at 872.50;

TON 10-Stop (87250), TON 11-Stop (87250), and TON 12-Stop (87250) aretriggered by Trade 7;

Trade 8 TON 4 (4-lot) trades with TON 10 (4-lot) at 872.50; and

Trade 9 TON 5 (1-lot) trades with TON 10 (1-lot) at 872.50.

The market is placed in a reserved state because the trade that wouldoccur at a price of 867.50 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 874.00, the market will not trade past a price of 868.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 6 10 86750 86750 5 TON 11 86750 10 TON12

Due to a manual intervention, the instrument will not re-open until anexchange administrator performs an alternate manual intervention tore-open the market.

In a sixth example, a price comparison to a multiple of the no-bustrange occurs. When a sell order enters the market for a quantity of 1 at865.75, a cascade of stop orders is triggered. The minimum price thatmay be traded for the first trading iteration is 859.75 (1×) and theminimum price that may be traded for the second iteration is 853.75(2×). The ESM3 market will be reserved at 859.75 (one iteration) and853.75 (two iterations).

ESM3 TON QTY BID ASK QTY TON TON 1 10 86575 86550 10 Stop (86575) TON 8TON 2 5 86550 86450 5 Stop (86550) TON 9 TON 3 5 86500 86200 5 Stop(86500) TON 10 TON 4 5 86450 86250 5 Stop (86450) TON 11 TON 5 1 8625086150 5 Stop (86250) TON 12 TON 6 10 86300 86300 10 Stop (86300) TON 13TON 7 5 85900 86575 1 Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@865.75 enters market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 865.75;

TON 8-Stop (86575) is triggered by Trade 1;

Trade 2 TON 1(9-lot) trades with TON 8 (9-lot) at 865.75;

Trade 3 TON 2 (1-lot) trades with TON 8 (1-lot) at 865.50;

TON 9-Stop (86550) is triggered by Trade 3;

Trade 4 TON 2 (4-lot) trades with TON 9 (4-lot) at 865.50;

Trade 5 TON 3 (1-lot) trades with TON 9 (1-lot) at 865.00;

TON 10 Stop (86500) is triggered by Trade 5;

Trade 6 TON 3 (4-lot) trades with TON 10 (4-lot) at 865.00;

Trade 7 TON 4 (1-lot) trades with TON 10 (1-lot) at 864.50;

TON 11-Stop (86450) is triggered by Trade 7;

Trade 8 TON 4 (4-lot) trades with TON 11 (4-lot) at 864.50;

Trade 9 TON 5 (1-lot) trades with TON 1 (1-lot) at 862.50;

TON 12-Stop (86250) is triggered by Trade 9;

Trade 10 TON 6 (5-lot) trades with TON 12 (5-lot) at 862.00;

TON 13-Stop (86200) is triggered by Trade 10; and

Trade 11 TON 6 (5-lot) trades with TON 13 (5-lot) at 862.00.

The market is placed in a reserved state because the trade that wouldoccur at a price of 853.00 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 865.75, the market will not trade past a price of 859.75(1×) and 853.75 (2×). The order book will display the following in areserved state:

ESM3 TON QTY BID ASK QTY TON TON 7 5 85300 85300 5 TON 13

After waiting a predetermined length of time, if the indicative openingprice (853.00) is greater than twice the no bust range (12.00 from theoriginal last price), the market will remain in a reserved state for asecond time iteration. In this example, the market will repeat a seconditeration in a reserve state. After the second iteration, the marketwill again validate the indicative opening price and the market willre-open because the indicative opening price (853.00) is within the newprice range.

Trade 12 TON 7 (5-lot) trades with TON 13 (5-lot) at 853.00.

In a seventh example, an instrument is scheduled to close before theexpiration of the stop price validation variable. If the instrument iscurrently in a reserve state due to a no bust range violation, theinstrument will proceed to a closed state. The following sequenceillustrates this example:

Price logic is violated due to the triggering of a stop order violatingthe no bust range.

The market is placed in a reserved state for an initial iteration of apredetermined time.

While the timer is measuring the timing interval, a group controllercloses the instrument.

The stop price validation parameter is reset due to an override by thegroup controller.

In an eighth example, an imbalance condition occurs during execution ofa single conditional order. The minimum price that can be traded forthis trading iteration is 854.00.

ESM3 TON QTY BID ASK QTY TON TON 1 1 86000 85300 6 Stop (86000) TON 6TON 2 1 85900 TON 3 1 85800 TON 4 2 85400 TON 5 1 85300 86000 1Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@860.00 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 860.00;

TON 6-Stop (86000) is triggered by Trade 1;

Trade 2 TON 2 (1-lot) trades with TON 6 (1-lot) at 859.00;

Trade 3 TON 3 (1-lot) trades with TON 6 (1-lot) at 858.00; and

Trade 4 TON 4 (2-lot) trades with TON 6 (2-lot) at 854.00.

The market is placed in a reserved state because the trade that wouldoccur at a price of 853.00 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 860.00, the market will not trade past a price of 854.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 5 1 85300 85300 2 TON 6

After waiting a predetermined length of time, if the indicative openingprice is greater than twice the no bust range (12.00 from the originallast price), the market will remain in a reserved state for a secondtime iteration. In this example, the market will be allowed to open atthe end of the five second delay and the following trade will takeplace:

Trade 5 TON 5 (1-lot) trades with TON 6 (1-lot) at 853.00.

ESM3 QTY BID ASK QTY 85300 1

In a ninth example, the market is in a reserved state. Additional ordersare entered which alter the indicative opening price and allow themarket to open. If the new limit orders were not entered, the marketwould have remained reserved due to violation of the no bust limit.

ESM3 TON QTY BID ASK QTY TON TON 21 Stop (85400) 5 85525 85400 1 TON 1TON 20 Stop (85525) 5 85625 85525 5 TON 2 TON 19 Stop (85625) 5 8577585625 5 TON 3 TON 18 Stop (85775) 5 85950 85775 5 TON 4 TON 17 Stop(85950) 5 86025 85950 5 TON 5 TON 16 Stop (86025) 5 86350 86025 5 TON 6TON 10 Stop (86550) 5 86600 86600 5 TON 7 TON 9 Stop (86550) 5 8665086650 5 TON 8 Incoming1 1 85400

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1@854.00 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 854.00;

TON 21-Stop (85400) is triggered by Trade 1;

Trade 2 TON 21 (5-lot) trades with TON 2 (5-lot) at 855.25;

TON 20-Stop (85525) is triggered by Trade 2;

Trade 3 TON 20 (5-lot) trades with TON 3 (5-lot) at 856.25;

TON 19-Stop (85625) is triggered by Trade 3;

Trade 4 TON 19 (5-lot) trades with TON 4 (5-lot) at 857.75;

TON 18-Stop (85775) is triggered by Trade 4;

Trade 5 TON 18 (5-lot) trades with TON 5 (5-lot) at 859.50; and

TON 17-Stop (85950) is triggered by Trade 5.

The market is placed in a reserved state because the trade that wouldoccur at a price of 860.25 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 854.00, the market will not trade past a price of 860.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 17 5 86025 86025 5 TON 4 Incoming3 586650 86550 5 Incoming4 Incoming2 5 86650 86550 5 Incoming5 TON 10 Stop(86550) 5 86600 86600 5 TON 7 TON 9 Stop (86550) 5 86650 86650 5 TON 8

As shown, during the reserve state, new orders were received. Due to theincoming orders, the indicative opening price is now 866.00. Afterwaiting a predetermined length of time, if the indicative opening price(866.00) is greater than twice the no bust range (12.00 from theoriginal last price), the market will remain in a reserved state for asecond iteration. In this example, the market will be allowed to re-openbecause the indicative opening price (866.00) is within the new range(866.00).

TON 10-Stop (86550) and TON 9-Stop (86550) is triggered by theindicative opening price;

Trade 6 TON 10 (5-lot) trades with Incoming4 (5-lot) at 866.00;

Trade 7 TON 9 (5-lot) trades with Incoming5 (5-lot) at 866.00;

Trade 8 Incoming3 (5-lot) trades with TON 7 (5-lot) at 866.00; and

Trade 9 Incoming2 (5-lot) trades with TON 6 (5-lot) at 866.00.

ESM3 QTY BID ASK QTY 5 86025 86650 5

In a tenth example, the market is reserved. The indicative opening priceis a better bid that violates the no bust range and the market remainsreserved.

ESM3 TON QTY BID ASK QTY TON TON 11 Stop (85400) 5 85525 85400 1 TON 1TON 10 Stop (85525) 5 85625 85525 5 TON 2 TON 9 Stop (85625) 5 8577585625 5 TON 3 TON 8 Stop (85775) 5 85950 85775 5 TON 4 TON 7 Stop(85950) 5 86625 85950 5 TON 5 86625 5 TON 6 Incoming1 1 85400

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1@854.00 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 854.00;

TON 11-Stop (85400) is triggered by Trade 1;

Trade 2 TON 11 (5-lot) trades with TON 2 (5-lot) at 855.25;

TON 10-Stop (85525) is triggered by Trade 2;

Trade 3 TON 10 (5-lot) trades with TON 3 (5-lot) at 856.25;

TON 9-Stop (85625) is triggered by Trade 3;

Trade 4 TON 9 (5-lot) trades with TON 4 (5-lot) at 857.75;

TON 8-Stop (85775) is triggered by Trade 4;

Trade 5 TON 8 (5-lot) trades with TON 5 (5-lot) at 859.50; and

TON 7-Stop (85950) is triggered by Trade 5.

The market is placed in a reserved state because the trade that wouldoccur at a price of 866.25 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 854.00, the market will not trade past a price of 860.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 7 5 86625 86625 5 TON 6

During the reserved state, the remaining offer is cancelled (TON 6) anda new order is entered at a price of 867.00. The indicative openingprice is currently an 867.00B (better bid).

ESM3 TON QTY BID ASK QTY TON Incoming2 5 86700 TON 7 5 86625

After waiting a predetermined length of time, the indicative openingprice (867.00B) is outside the no bust range of 866.00(2×6.00) and themarket will remain in reserved state for a second iteration. After thesecond iteration is exhausted, the indicative opening price lies withinthe no bust range and the market opens.

In an eleventh example, the market is reserved. Upon validation of anindicative opening price (an indicative opening price that is a betteroffer (A)), the market remains reserved because the indicative openingprice violates the no bust range.

ESM3 TON QTY BID ASK QTY TON TON 1 1 86525 86450 5 Stop (86525) TON 7TON 2 5 86450 86400 5 Stop (86450) TON 8 TON 3 5 86400 86300 5 Stop(86400) TON 9 TON 4 5 86300 85300 5 Stop (86300) TON 10 TON 5 5 8530086525 1 Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@865.25 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 865.25;

TON 7-Stop (86525) is triggered by Trade 1;

Trade 2 TON 2 (5-lot) trades with TON 7 (5-lot) at 864.50;

TON 8-Stop (86450) is triggered by Trade 2;

Trade 3 TON 3 (5-lot) trades with TON 8 (5-lot) at 864.00;

TON 9-Stop (86400) is triggered by Trade 3;

Trade 4 TON 4 (5-lot) trades with TON 9 (5-lot) at 863.00; and

TON 10-Stop (86300) is triggered by Trade 4.

The market is placed in a reserved state because the trade that wouldoccur at a price of 853.00 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 865.25, the market will not trade past a price of 859.25.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 5 5 85300 85300 5 TON 10

During the reserved state, the remaining bid is cancelled (TON 5) and abetter offer enters the market. The indicative opening price iscurrently an 852.00A (better offer).

ESM3 TON QTY BID ASK QTY TON 85300 5 TON 10 85200 5 TON 11

After waiting a predetermined length of time, the indicative openingprice (852.00) is outside the no bust range of 853.25(2×6.00) and themarket will remain in reserved state for a second iteration. After thesecond iteration is exhausted, the indicative opening price will lieinside the no bust range and the market opens.

In the twelfth example, the market is reserved. Upon validation of anindicative opening price, (an indicative opening price that is a betterbid (B)) the market opens because the indicative opening price no longerviolates the no bust range.

ESM3 TON QTY BID ASK QTY TON TON 11 Stop (85400) 5 85525 85400 1 TON 1TON 10 Stop (85525) 5 85625 85525 5 TON 2 TON 9 Stop (85625) 5 8577585625 5 TON 3 TON 8 Stop (85775) 5 85950 85775 5 TON 4 TON 7 Stop(85950) 5 86025 85950 5 TON 5 86025 5 TON 6 Incoming1 1 85400

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1@854.00 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 854.00;

TON 11-Stop (85400) is triggered by Trade 1;

Trade 2 TON 11 (5-lot) trades with TON 2 (5-lot) at 855.25;

TON 10-Stop (85525) is triggered by Trade 2;

Trade 3 TON 10 (5-lot) trades with TON 3 (5-lot) at 856.25;

TON 9-Stop (85625) is triggered by Trade 3;

Trade 4 TON 9 (5-lot) trades with TON 4 (5-lot) at 857.75;

TON 8-Stop (85775) is triggered by Trade 4;

Trade 5 TON 8 (5-lot) trades with TON 5 (5-lot) at 859.50; and

TON 7-Stop (85950) is triggered by Trade 5.

The market is placed in a reserved state because the trade that wouldoccur at a price of 860.25 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 854.00, the market will not trade past a price of 860.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 7 5 86025 86025 5 TON 6

During the reserved state, the remaining offer is cancelled (TON 6).After waiting a preset length of time, the indicative opening price willbe the bid price (860.25) which is no longer in violation of the no bustrange (866.00) and the market opens.

In a thirteenth example, the market is reserved. Upon a validation ofthe indicative opening price (an indicative opening price that is abetter offer (A) that no longer violates the no bust range) the marketopens.

ESM3 TON QTY BID ASK QTY TON TON 1 1 86525 86450 5 Stop (86525) TON 7TON 2 5 86450 86400 5 Stop (86450) TON 8 TON 3 5 86400 86300 5 Stop(86400) TON 9 TON 4 5 86300 85900 5 Stop (86300) TON 10 TON 5 5 8590086525 1 Incoming1

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Sell of 1@865.25 enters the market:

Trade 1 Incoming1 (1-lot) trades with TON 1 (1-lot) at 865.25;

TON 7-Stop (86525) is triggered by Trade 1;

Trade 2 TON 2 (5-lot) trades with TON 7 (5-lot) at 864.50;

TON 8-Stop (86450) is triggered by Trade 2;

Trade 3 TON 3 (5-lot) trades with TON 8 (5-lot) at 864.00;

TON 9-Stop (86400) is triggered by Trade 3;

Trade 4 TON 4 (5-lot) trades with TON 9 (5-lot) at 863.00; and

TON 10-Stop (86300) is triggered by Trade 4.

The market is placed in a reserved state because the trade that wouldoccur at a price of 859.00 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 865.25, the market will not trade past a price of 859.25.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 5 5 85900 85900 5 TON

indicates data missing or illegible when filed

During the reserved state, the remaining bid is cancelled (TON 5). Afterwaiting a preset length of time, the indicative opening price is theoffer price (859.00) which is no longer in violation of the no bustrange (853.25) and the market opens.

When a buy order enters the market for a quantity of 1 at 861.00, acascade of stop orders is triggered in a fourteenth example.

ESM3 TON QTY BID ASK QTY TON TON 6 Stop (86100) 5 86250 86100 1 TON 1TON 7 Stop (86250) 5 86350 86250 5 TON 2 TON 8 Stop (86350) 5 8645086350 5 TON 3 TON 9 Stop (86450) 5 86850 86450 5 TON 4 TON 10 Stop(86450) 5 86875 86800 5 TON 5 TON 11 Stop (86450) 10 86900 Incoming1 TON12 1 86100

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1@861.00 enters the market:

Trade 1 Incoming 1, TON 12 (1-lot) trades with TON 1 (1-lot) at 861.00;

TON 6-Stop (86100) is triggered by Trade 1;

Trade 2 TON 2 (5-lot) trades with TON 6 (5-lot) at 8620.50;

TON 7-Stop (86250) is triggered by Trade 2;

Trade 3 TON 3 (5-lot) trades with TON 7 (5-lot) at 863.50;

TON 8-Stop (86350) is triggered by Trade 3;

Trade 4 TON 4 (5-lot) trades with TON 8 (5-lot) at 864.50; and

TON 9-Stop (86450), TON 10-Stop (86450) and TON 11-Stop (86450) aretriggered by Trade 4.

The market is placed into a reserved state because the trade that wouldoccur at a price of 868.50 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 861.00, the market will not trade past a price of 867.00.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON Incoming2 indicative 10 86875 86875 12 TON5 opening price TON 9 5 86850 TON 10 5 86875 TON 11 5 86900

During the first iteration, a second incoming order is entered whichgenerates a bias on the bid side of the market. The indicative openingprice generated after the second incoming order enters a 10-lot on thebid side and a 12-lot on the offer side at a price of 868.75. Afterwaiting a predetermined length of time, if the indicative opening priceis greater than twice the no bust range (12.00 from the original lastprice), the market will remain in a reserved state for a second timeiteration. In this example, the market opens at the end of a five seconddelay because the indicative opening price (868.75) is not outside theno bust range (873.00). The following trades then take place:

Trade 7 TON 10 (5-lot) trades with TON 5 (5-lot) at 868.75;

Trade 8 TON 11 (5-lot) trades with TON 5 (5-lot) at 868.75; and

Trade 9 Incoming2 (2-lot) trades with TON 5 (2-lot) at 868.75.

ESM3 QTY BID ASK QTY 8 86875 5 86850

When a sell order enters the market for a quantity of 1 at 861.00, acascade of stop orders is triggered in a fifteenth example. The minimumprice that can be traded in this trading iteration is 859.25.

ESM3 TON QTY BID ASK QTY TON TON 1 1 865.25 864.50 5 Stop (865.25) TON 6TON 2 5 864.50 864.00 5 Stop (864.50) TON 7 TON 3 5 864.00 863.00 5 Stop(864.00) TON 8 TON 4 5 863.00 859.00 5 Stop (863.00) TON 9 TON 5 12859.00 858.50 5 Stop (863.00) TON 10 858.00 5 Stop (863.00) TON 11Incoming1 1 865.25 TON 12

With the market in a continuous trading state, the following sequenceoccurs if Incoming1—Buy of 1@65.25 enters the market:

Trade 1 Incoming1, TON 12 (1-lot) trades with TON 1 (1-lot) at 865.25;

TON 6 (865.25) is triggered by Trade 1;

Trade 2 TON 2 (5-lot) trades with TON 6 (5-lot) at 864.50;

TON 7 (864.50) 864.00 is triggered by Trade 2;

Trade 3 TON 3 (5-lot) trades with TON 7 (5-lot) at 864.00;

TON 8 (864.00) is triggered by Trade 3;

Trade 4 TON 4 (5-lot) trades with TON 8 (5-lot) at 863.00; and

TON 9 (86300), TON 10 (86300) and TON 11 (86300) are triggered by Trade4.

The market is placed into a reserved state because the trade that wouldoccur at a price of 859.00 would violate the no bust range. The no bustrange for ES is currently six. Since the stop iteration began with atrade price of 865.25, the market will not trade past a price of 859.25.The order book will display the following in a reserved state:

ESM3 TON QTY BID ASK QTY TON TON 5 12 859.00 859.00 5 TON 9 858.75 10Incoming

858.50 5 TON 10 858.00 5 TON 11

indicates data missing or illegible when filed

During the first iteration a second incoming order entered generates abias on the sell side of the market. The indicative opening pricegenerated after the second incoming order enters a 12-lot on the bidside and 10-lot on the offer side with an indicative opening price of858.75. After waiting a predetermined length of time, if the indicativeopening price is greater than twice the no bust range (12.00 from theoriginal last price), the market will remain in a reserved state for asecond time iteration. In this example, the market will open at the endof a five second delay because the indicative opening price (858.75) isnot outside the no bust range (853.25).

Trade 7 TON 10 (5-lot) trades with TON 5 (5-lot) at 858.75;

Trade 8 TON 11 (5-lot) trades with TON 5 (5-lot) at 858.75; and

Trade 9 Incoming2 (2-lot) trades with TON 5 (2-lot) at 858.75.

In a sixteenth example, a buy stop order enters the GEU7 market with apredetermined price threshold of 9500. The buy stop order creates a stoporder cascade that has released stop orders TON 5 through TON 13 to themarket. The stop orders TONS through TON 13 have prices beyond the bestask price. The GEU7 order book will display the following:

GEU7 TON QTY BID ASK QTY TON TON 5 20 9520 9500 30 TON 1 TON 6 100 95179501 500 TON 2 TON 7 1000 9517 9502 150 TON 3 TON 8 500 9516 9503 150TON 4 TON 9 200 9510 TON 10 150 9505 TON 11 50 9502 TON 12 50 9502 TON13 100 9500

The GEU7 market will be flagged because the predetermined pricethreshold of 9500 has been reached. Because the predetermined pricethreshold has been reached, the quantity in the released stop orders TON5 through TON 13 is aggregated at the predetermined price threshold of9500. The GEU7 order book will display the following when the market isflagged:

GEU7 TON QTY BID ASK QTY TON Aggregated 2140 9500 9500 30 TON 1 9501 500TON 2 9502 150 TON 3 9503 150 TON 4

The order priority may be maintained, based on the best price and theorder arrival time. The following trade occurs after the stop orders TON5 through TON 13 are aggregated at the predetermined price threshold of9500 :

Trade 1 TON 1 (30-lot) trades with Aggregated (30-lot) at 9500

Aggregated (30-lot) is TON 5 (20-lot) originally at 9520 and TON 6(10-lot) originally at 9517

The GEU7 order book will display the following after Trade 1 isexecuted:

GEU7 TON QTY BID ASK QTY TON Aggregated 2110 9500 9501 500 TON 2 9502150 TON 3 9503 150 TON 4

Trading continues and any orders above the predetermined price thresholdare aggregated with the existing orders that are already aggregated. Theorder priority continues to be maintained. Incoming sell orders arematched with the aggregated buy orders at the predetermined pricethreshold. Orders in the aggregated pool may be cancelled or modified.

In a seventeenth example, the GEU7 market has already been flagged aftera buy stop order cascade. The GEU7 market has a predetermined pricethreshold of 9500 . The quantity in the released stop orders has beenaggregated at the predetermined price threshold of 9500 . After apredetermined interval and/or a predetermined quantity have beenreached, the entire quantity in the aggregated buy order pool has notall been matched with sell orders. The GEU7 order book displays thefollowing:

GEU7 TON QTY BID ASK QTY TON Aggregated 10708 9500 9506 640 TON 1 9507330 TON 2 9508 740 TON 3

Because there is quantity remaining in the aggregated buy order poolthat cannot be matched with sell orders, the predetermined pricethreshold is adjusted. The predetermined price threshold is adjusted bya predetermined price interval. In this example, the predetermined priceinterval is 5. The predetermined price interval is adjusted up for thebuy orders to 9505. The TON 4 through TON 7 orders that were aggregatedat 9500 are now individually listed in the GEU7 order book because theirprices are below the adjusted price threshold, and trading continuesnormally. The GEU7 order book displays the following:

GEU7 TON QTY BID ASK QTY TON TON 4 9954 9505 9506 640 TON 1 TON 5 3209504 9507 330 TON 2 TON 6 334 9503 9508 740 TON 3 TON 7 100 9502

While some embodiments of the invention have been described, it shouldbe apparent that many more embodiments and implementations are possibleand are within the scope of this invention. It is intended that theforegoing detailed description be regarded as illustrative rather thanlimiting, and that it be understood that it is the following claims,including all equivalents, that are intended to define the spirit andscope of this invention.

1. A system that mitigates the effects of rises or falls in marketprices caused by the execution of a conditional order, comprising: anorder book manager that receives a plurality of orders; an orderprocessor that compares an execution price of the conditional order to apredetermined price threshold; and a spike control processor thatcontrols the matching of at least one order of the plurality of ordersreceived by the order book manager when the price of the conditionalorder lies beyond the predetermined price threshold, those orders of theplurality of orders received by the order book manager which have aprice within the predetermined price threshold being matched at thepredetermined price threshold against other orders of the plurality oforders which have a price beyond the predetermined price threshold. 2.The system of claim 1 wherein the predetermined price threshold isassociated with a no-bust range.
 3. The system of claim 1 wherein thepredetermined price threshold comprises a variable price threshold thatvaries with any of a market volatility, time of day, and combinationsthereof.
 4. The system of claim 1 wherein the spike control processor isfurther configured to control the matching of the plurality of orderssuch that those orders of the plurality of orders which have a pricewithin the predetermined price threshold are matched at thepredetermined price threshold against the other orders which have aprice beyond the predetermined price threshold, and are prioritizedbased on price, order arrival, or a combination thereof.
 5. The systemof claim 1 further comprising a step price processor that adjusts thepredetermined price threshold when any orders of the plurality of ordersreceived at the order book manager have a price beyond the predeterminedprice threshold, a predetermined time interval is exceeded, apredetermined quantity is exceeded, or a combination thereof.
 6. Thesystem of claim 5 wherein the orders of plurality of orders received atthe order book manager that have a price beyond the predetermined pricethreshold are matched at the adjusted price threshold against ordersbeyond the predetermined price threshold.
 7. A method of mitigating theeffect of a market spike caused by the triggering and election of aconditional order, comprising: monitoring a plurality of orderssubmitted to an automated trading engine in an automated matchingsystem; comparing the execution price of the conditional order to apredetermined price threshold; flagging a market for an instrument whenthe execution price of the conditional order lies beyond thepredetermined price threshold; matching those orders of the plurality oforders for the instrument in the flagged market, which have a pricewithin the predetermined price threshold, at the predetermined pricethreshold against other orders which have a price beyond thepredetermined price threshold.
 8. The method of claim 7 wherein thepredetermined price threshold is associated with a no-bust range.
 9. Themethod of claim 7 wherein the predetermined price threshold comprises avariable price threshold that varies with any of a market volatility,time of day, and combinations thereof.
 10. The method of claim 7 whereinthe matching further comprises matching those orders of the plurality oforders for the instrument in the flagged market, which have a pricewithin the predetermined price threshold, at the predetermined pricethreshold against other orders of the plurality of orders having a pricebeyond the predetermined price threshold, in a priority order based onprice, order arrival, or a combination thereof.
 11. The method of claim7 further comprising adjusting the predetermined price threshold whenany orders of the plurality of orders received at the automated tradingengine for the instrument in the flagged market have a price beyond thepredetermined price threshold, a predetermined time interval isexceeded, a predetermined quantity is exceeded, or a combinationthereof.
 12. The method of claim 11 wherein the matching furthercomprises matching orders for the instrument in the flagged market atthe adjusted price threshold against orders beyond the predeterminedprice threshold.
 13. A computer readable medium storing instructionswhich when executed mitigate an effect of a market spike caused atrigger and election of a conditional order in an automated matchingsystem, the instructions operable to: monitor a plurality of tradeswhich occur as a result of the trigger and election of the conditionalorder; determine when a trade of the plurality of trades is executed aprice beyond a predetermined price threshold; based on the determinationthat a trade of the plurality of trades has been executed at a pricebeyond the predetermined price threshold, other trades of the pluralityof trades are allowed to match only at or within the predetermined pricethreshold, wherein a trade of the plurality of trades, which has a pricewithin the predetermined price threshold, is matched at a price equal tothe predetermined price threshold with another trade of the plurality oftrades, which has a price beyond the predetermined price threshold. 14.The computer readable medium of claim 13 wherein the instructions arefurther operable to dampen the effect of the market spike.
 15. Thecomputer readable medium of claim 13 wherein instructions are furtheroperable to adjust the predetermined price threshold.
 16. The computerreadable medium of claim 15 wherein the instructions are furtheroperable to adjust the predetermined price threshold until predeterminedprice threshold is within a market determined price for an instrumentunderlying the plurality of trades.
 17. The computer readable medium ofclaim 13 wherein the predetermined price threshold is associated with ano-bust range.
 18. The computer readable medium of claim 13 wherein thepredetermined price threshold comprises a variable price threshold thatvaries with any of a market volatility, time of day, and combinationsthereof.
 19. The computer readable medium of claim 13 wherein theinstructions are further operable to control the matching of theplurality of trades such that those trades of the plurality of tradeswhich have a price within the predetermined price threshold are matchedat the predetermined price threshold against the other trades which havea price beyond the predetermined price threshold, and are prioritizedbased on price, order arrival, or a combination thereof.
 20. Thecomputer readable medium of claim 13 wherein the instructions arefurther operable to allow a market for an instrument underlying theplurality of trades to continuously trade in controlled price and timeintervals to ensure that a true market move can still occur and not haveprice control mechanisms hinder trade matching and true price discovery.